May 30, 2007

Bredesen WILL Bust the Copeland Cap

Tennessee Finance Commissioner David Goetz says in today's Nashville City Paper that Gov. Phil Bredesen's proposed $28 billion budget would not break the state constitution's "Copeland Cap" on the year-over-year growth of the budget. I don't believe him - they almost certainly are playing some very tricky accounting games...

The Copeland Cap limits the annual growth of spending from state tax dollars to the estimated growth rate of the state's economy, which is defined by law as personal income growth. The total state budget (that is, not including federal dollars) for the current fiscal year was: $12,410,400,661. For every one percent of estimated economic growth rate for the coming year, the budget can be increased by $124,104,006 without breaking the Copeland Cap. If the economy is estimated to grow at a healthy 4 percent, the state budget could be increased by $496.41 million without breaking Copeland.

Bredesen is proposing a $1.5 billion spending increase.

I find it hard to believe the State Funding Board is projecting the average Tennessean's income will grow 12 percent this year.

Update: Here is the trick I believe the administration may be about to play: The current fiscal year budget, as passed last year, was $100,000 under the Copeland Cap. The administration will push through the legislature the legislation required to authorize the breaking of the Copeland Cap this fiscal year, spend a ton of the surplus this fiscal year, just two months before the fiscal year ends, and then calculate next year's Copeland limit based on this year's inflated budget.

It wouldn't be the first time. In his first year in office, Bredesen asked for and got legislative permission to exceed the Copeland Cap by $275 million in the current fiscal year, just two months before the fiscal year ended. That set the baseline for calculating the subsequent fiscal year's Copeland limit $275 million higher. The $275 million wasn't actually spend in the final eight weeks of the fiscal year - the revenue hadn't even been collected yet. It was just appropriated by the legislature. But that was good enough to inflate the budget baseline by $275 million for the next year.

Legislation has already been filed to authorize exceeding the Copeland Cap in the current fiscal year, and only awaits amending it with whatever number Bredesen requests. The legislation is carried in the legislature by Senate Democratic Leader Jim Kyle and House Majority Leader Gary Odom, who carry the Bredesen administration's legislative agenda in the Senate and House.

You can read more about the history of the Copeland Cap and how a succession of governors have basically ignored it here, in a research paper titled Spending Spree: The Bipartisan Assault That is Killing The Constitutional Cap on the Growth of Tennessee's State Budget. (9-page PDF file).